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Over three months, three years, and even a decade the European high-yield bond fund sector has been the star performing bond sector, according to Citywire data.

Fund sector average total return over three years: Click to enlarge

This is the high-risk end of the bonds market: bonds issued by companies that pay a higher yield to investors, but come with a lower credit rating and hence higher risk of default.

In the first months of 2012 investors – eyeing companies that are in good health, sitting on cash with low default rates – poured money into the sector in line with a more general trend towards risk-taking that saw equity markets rise too.

High-yield bonds are, after all, often more closely associated with shares rather than other types of bonds. Their performance, which doesn’t necessarily follow other bonds that closely, is linked to the business results and fundamentals of the companies they represent.

And like the equity market, high yield is vulnerable to changes in sentiment, making it volatile and closely attuned to the economic cycle.

For that reason interest in European high yield has waned recently, with a shift to US high yield.

Nick Gartside, who manages the J.P. Morgan Strategic Bond Fund , says while he has maintained allocation to high yield ‘we like US high yield mainly’, with 10% in European high yield ‘in strong companies like northern European manufacturing companies’.

Ashish Shah, global head of credit at AllianceBernstein, agrees that the US is a safer, but less profitable, destination. He told Citywire earlier this month: ‘Europe is going to be the most exciting ride in both directions and that means you’re going to have upside periods like you did in the first quarter – 13% type returns – but you are also going to see the downsides of that.’

‘If Europe continues to dislocate on the back of peripheral volatility then there are going to be some really attractive opportunities as the proverbial baby gets thrown out with the bathwater.’

While regional opinions may vary, enthusiasm for the sector remains strong. High yield is the only asset class in the world (barring US dollars) where Standard Life Investments currently has a ‘very heavy’ allocation.